ISODA holds meet to reduce partner liability

Mumbai: In view of the ambiguities surrounding the taxation structure and the implications of the same on daily transactions, ISODA (Infotech Software Dealers Association) held a meeting on friday 24th July 2009. The meeting saw participation from around 22 members of the western chapter of ISODA.

During the meeting the members discussed several issues affecting software trade. One of the burning issue that came up for discussion was around ways to reduce partner liability in cases where distributors are charging only VAT on the dealer's purchase bills and further the dealer applies the same on his/her sales invoice. The above practice is being applied to all the software products of Microsoft including FPP, OEM, MOLP, OVL, Auto Desk, Corel, FPP and Symantec FPP among others.

Talking about the issue, Harinder Salwan, Secretary, ISODA, stated, “Distributors can claim input credit of CVD (Countervailing duties) paid during import against service tax liability (if that is demanded by service tax authorities retrospectively as per proposed finance bill). The same input credit is not available to us as a partner since the distributor is not sending us an excise invoice. We have resolved to approach Ingram and Redington to issue excise invoices for all transaction done since 16th May 2008 where the credit of CVD paid was passed on to the partner. In addition we will also make it mandatory for the distributors to issue excise invoices for all such future transactions.”

In the absence of an invoice, the liability of a software dealer (in case a demand for service tax arises) is complete 10.3 % (or 12.36% for old transactions as the case may be).

ISODA has also resolved to continue billing to the customer with VAT only for CVD paid items, till further communication from appropriate authorities and has issued a mail to its members across the country notifying them of its decision.

Explaining how the move will help partners Salwan mentioned that since there is no clarity on taxation, dealers are charging both CVD (or excise duty) plus VAT for the box products and only service tax (minus CVD) on paper licenses. For Microsoft's MOLP, FPP, OEM and OVL, dealers are applying both Service tax plus VAT plus paying CVD on it.

 On the other hand, in order to avoid paying service tax, distributors are paying CVD while importing the software product but not sharing the excise invoice for the same with the dealers.

“If the distributors pay service tax they will have to deduct TDS and to avoid that they are paying CVD at the time of import. On the other hand, the tax authorities can approach the dealers and claim CVD and service tax in addition to VAT which in turn will lead to an increase in the basic cost of the product for the dealers. But, if the dealers have the invoice that shows that the distributors have paid CVD, they can produce the same before tax authorities and pay only VAT and service tax for boxes and only service tax, if its a paper license. Hence the dealers (channel partners) can reduce liability and so ISODA has approached the distributors and has demanded them to share the excise invoices,” added Salwan.

On the other hand, ISODA' case (3811) around resolving the software taxation issue that came up for hearing on 24th has been postponed till 7th August. The association is now planning to hold an all-India meet to rope in members from other regions to discuss the course of action to be undertaken further.

Said Salwan, “We have scheduled an all-India meet in Mumbai on August 21, wherein we will decide the course of action to be undertaken on the taxation front. The meet will witness participation from members across the country.Besides, if by then the distributors will have taken a decision on the billing procedures to be followed, we will review our decision further."